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On this episose of Yahoo Finance Presents, Head of Facebook Financial David Marcus sat down with Yahoo Finance Editor-in-Chief Andy Serwer to discuss Facebook's 'next gen digital wallet,' dubbed Novi. He also discusses the government approval process for Novi, and how the wallet sets out redefine the modern payment industry.
ANDY SERWER: Hello, everyone. Welcome to "Yahoo Finance Presents." I'm Andy Serwer. And welcome to our guest David Marcus, Head of F2, also known as Facebook Financial. David, nice to see you.
DAVID MARCUS: Thanks for having me.
ANDY SERWER: So I want to ask you about Novi, which is a digital wallet that Facebook has. How is it different from other digital payment systems, I guess, offered by companies like Venmo or by your former business PayPal?
DAVID MARCUS: So both of these products very near and dear to my heart for having spent time on them. The biggest difference is really the fact that Novi is a next-generation digital wallet that is built on new payments infrastructure, ideally with Diem, which was formerly known as Libra, which basically serves, if you will, as a protocol for money on the internet. And the biggest difference is actually the fact that these wallets that will be built on top of this infrastructure, including Novi, the Facebook upcoming wallet, will enable people to move money around different wallets. So you'll have interoperability.
Today, most wallets are a little bit like older communication systems that weren't interoperable before email. And you know, we're a little bit in a world as if you were using Gmail and you couldn't send an email to Yahoo Mail, which would be kind of odd in these days. But that's true for money and wallets today, so Novi will be interoperable. And also, while it will enable people to send money domestically for free and really conveniently, it will also focus intently on cross-border payments and international payments.
ANDY SERWER: That interoperability is a big focus today with, say, the metaverse, which is kind of an interesting concept as well. One focus of Novi is, my understanding, to provide financial services for the unbanked worldwide. Why will Novi reach them where others have not?
DAVID MARCUS: So I think we need a paradigm shift in our current payments infrastructure. When you come to think about it, it hasn't evolved all that much in the last 50 years. About 70% of our total payment volume in terms of value goes on top of ACH, which are rails that were built in the early '70s and take about three days to clear. And the current system is kind of tilted in such a way that for the people who need it the most, they're actually charged the most.
And so we're thinking that new infrastructure-- the same way it actually played out in communications when you come to think about it-- will actually help lower the cost and the barrier of entry for many, many people, 1.7 billion people currently who are completely unbanked and another billion who are underserved by financial services. And if I may just elaborate on that parallel with communications, we used to spend $1 a minute for an international call and $0.15 to $0.25 per text message.
And with the internet and over-the-top apps, among which WhatsApp and Messenger were big players and still are big players in the space, we were able to completely change the game. And now with a $25 smartphone, you have access to unlimited high-fidelity communications, and that was a privilege that was reserved to the more wealthy of us back in the day. And I think we can help do the same thing for money.
ANDY SERWER: You said you plan to release Novi, what, late this year, early next year? Do you have a target date? How many countries will it be available in? And what payment features will users get immediately?
DAVID MARCUS: So we're planning to launch this half, so before the end of this year, or 2021, and an initial less than a handful of countries, and then gradually go from there. We want to be very deliberate in the way that we scale the product, because we're also very cognizant that in some of these regions there are lots of local integrations that need to be built, notably for cash out and cash in locations.
Because if you're the recipient of a cross-border payment, you often don't have a bank account on the receiving end, and so you need to make sure that you can actually physically go to a local cash out point and get your cash out immediately or use it with other people who will be on the network in your country, which is also why interoperability, by the way, is so important, because we can't pretend or think that we're going to have the ability to build the best wallet for everyone.
We're going to build a very good wallet where we know the market really well. And our hope is that over time you have a lot of local players that will build much better experiences than we can ever build in some parts of the world. And we want to make sure that customers on Novi are able to send and receive money with these other wallets.
ANDY SERWER: David, I have to ask you, has Zuckerberg been very involved with Novi? How often do you talk to him about this project?
DAVID MARCUS: Oh, we talk regularly about this. And you know, it's definitely a project that's important to him. And I feel that, you know, it's important for the company at this time. I think we can help be solution to long-standing problems that many, many people have experienced for a very long time. And that's why we're all so passionate about this mission and about our ability to bring a really good solution to the issues.
ANDY SERWER: I mentioned the metaverse earlier, and I know Mark is very keen on that concept for the company. Is Novi connected to the metaverse somehow?
DAVID MARCUS: Well, in a way, yes, because in the metaverse-- and actually it's a very helpful way to think about future-proofing our products, by the way. But when you think about the metaverse, you think about a digital-only world. And when you think about a digital-only world or environment, then you can actually completely get rid of antiquated infrastructure and concepts that have no reason to exist in a digital-only world.
And that's very helpful, because it helps you think from a blank sheet of paper. And I think when you start to think about how payments should be invented for a world that was fully digital, it would look very different than the current world where you have to actually walk to a branch to do a wire transfer or cut paper checks.
And a world like this will need a protocol for money, will need interoperability not only for the world itself or the environment itself, but also for the wallets. And it will require smart contract programming language and programmable money, because it'll enable creators to build all kinds of new monetization models that will be great for them and really great for consumers.
And so we believe that we can be an enabling part of the vision for the metaverse. And while building for that, also building the right product and sets of experiences for the very people who are on those $25 smartphone right now and who probably won't experience the metaverse for a little while, but they will get the benefits of lower cost and more accessibility for payments and storing their money digitally.
ANDY SERWER: Fascinating. As you can tell, I love talking about the metaverse-- or ask you about it, I should say, David. So listen, you secured licenses and approvals for Novi from nearly every state. But approval, to my mind, remains murky with federal regulators. Will you launch Novi with or without a specific green light from the feds?
DAVID MARCUS: So actually, that's actually not correct. So Novi is a wallet that requires the proper licensing in every state as a money transmitter. And in some states, you know, they just don't have that framework, but in most states they do. And that's it, basically. And so from that standpoint, we're ready to go.
On the Diem side, they're also working on their end. And you know, as just a-- for the audience, you know, Diem was originally called Libra, is now an independent association made of 26 companies of which Novi/Facebook is one. And I sit on the board, but it's an independent organization now.
And what they're looking to do is roll out the network and a new stablecoin. And as you know, stablecoins are now a bounty. There are a number of stablecoins out there, and they have different properties.
We believe that in terms of consumer protections, both on the purpose-built payments blockchain that Diem is and on the stablecoin itself, that it's in a class of its own. And so we'd like to launch with that. And you know, you should talk to them to see where they are with their approvals. But as far as Novi is concerned, we've got all of the licensing requirements, and we're ready to go.
ANDY SERWER: OK. So the licensing that I was referring to that needs more federal regulatory approval would be with Diem, but not with Novi?
DAVID MARCUS: Well, I think you should talk to them about the licensing regime that they're seeking. And I think, you know, the reality is in both cases those two parts of this equation to make it really work well for consumers and businesses alike are definitely not going to launch without the proper regulatory framework. And you know, those things need to be regulated appropriately, and we believe in that both for Novi and for any stablecoin that we would support.
ANDY SERWER: Got it. And just for people watching and listening, it's Diem-- D-I-E-M-- not DM.
DAVID MARCUS: Yes, like carpe diem.
ANDY SERWER: Some people were confusing, like, DM, I'm DM'ing you from--
DAVID MARCUS: Well--
ANDY SERWER: Right.
DAVID MARCUS: --not necessarily a bad analogy to make--
ANDY SERWER: Right. There you go.
DAVID MARCUS: --when sending money.
ANDY SERWER: Yeah. So Axios reported that you were in Washington, DC, last week meeting with regulatory stakeholders. So have you spoken with, say, Treasury Secretary Janet Yellen, SEC Commissioner Gensler, or other top lawmakers like, say, Elizabeth Warren? And if so, what did you guys talk about?
DAVID MARCUS: So I'm not going to be specific with the meetings we've had, because those were private meetings that we've had with a number of regulators. But it's been a while for me. I think, you know, we've basically focused on the work for the last 18 months or so and building the best possible digital wallet out there and building all of the operational readiness that is actually required both from a customer service standpoint and from a compliance and regulatory standpoint in terms of our readiness to meet or exceed these standards on the Novi side.
And it's been a while, and it felt like it was the right time. And this all started with this Medium piece that I put out two weeks ago now and basically restating our ambitions and our motivations. And I think, you know, if I could redo one thing is really to state our motivations where we're going to make money, because I think in the absence of explaining where our business model, like, you know, basically we had left a vacuum for people to interpret all kinds of different things that ended up not being true, and so, you know, being out there and explaining exactly how we're going to build a business.
On top of this, keeping still absolutely free transactions for consumers, whether for domestic or cross-border transactions, was an important part of the conversation. And also just to check in with regulators more generally about where we are on this journey and where the market is headed.
ANDY SERWER: Well, let's talk about that revenue piece a little bit, David, because you said you didn't expect to get revenue from Novi until 2023. So do you expect it to be a revenue generator after that? And how?
DAVID MARCUS: So when I mentioned it was not going to be a revenue generator until 2023, I meant that, you know, in terms of the scale of Facebook for something to register, it takes quite a bit of work. And so I don't expect the Novi, or payments revenues in general at Facebook, to be meaningful until at least 2023, which is basically the time it'll take to start building the merchant services side of the house and really enable merchants to accept digital payments at a lower cost than what they're currently paying and doing so with more flexibility as well. Because I think that a great deal of innovation will come from a protocol for money on the internet and programmable money and next generation of digital wallets like Novi, but many others as well.
ANDY SERWER: Well, as head of F2, do you expect Facebook to get into the business of loans and deposits and other traditional banking services?
DAVID MARCUS: So not directly. So in other words-- and I also think that when the market is talking about stablecoins, it's also talking a lot about a use case that I don't think is going to be very big, because we're talking about deposits. And you know, people typically, certainly I do and I'm sure you do as well, we like to earn interest on our deposits. And stablecoins typically don't pay interest, you know, at least those that are fully backed with a reserve that doesn't allow them to actually pay interest.
And so my expectation is that banks will still be the primary deposit holders. And those who are actually forward-leaning and will integrate with the likes of Diem or new protocols for money on the internet will actually be able to not only retain that role, but expand from there. And I think from our standpoint, we're really focused narrowly as a first step, at least, on payments and enabling more people to have access to a modern payment network and a modern wallet. But I think over time, we might develop into other lines of businesses, but most likely in partnerships with existing banking institutions and financial services providers rather than doing these things first-party.